Retirement planning is a topic that can be as perplexing as deciphering Cockney rhyming slang. However, for Britons making their home in the United States, it’s essential to demystify the American retirement landscape.. Moving from the United Kingdom to the United States is a significant life change that comes with a host of financial considerations. Let us dive into the main points to consider when retiring in the US as a British expat.

Written exclusively for Expat Network by Robert Hoey of SJB Global

401(k) Plans – The US Standard

One of the most common retirement vehicles for U.S. residents is the 401(k) plan. If you’re employed by a U.S. company, you may have the opportunity to participate in a 401(k) plan, where you can contribute a portion of your pre-tax income. Employers often match a percentage of your contributions, providing a valuable incentive to save for retirement. Contributions grow tax-deferred until withdrawal.

“IRA’s – Two Flavors”

Individual Retirement Accounts (IRAs) come in two flavors: Traditional and Roth. It’s like choosing between BBC One and BBC Two, both excellent in their own right. With a Traditional IRA, you get a tax deduction upfront, while a Roth IRA allows tax-free withdrawals later. You can currently contribute a maximum of $6,500 into an IRA account per annum.

If you have built up various 401k’s /IRA’s, you may look to consider consolidating them into one IRA for ease of management. Simplicity is often the recipe for a retirement free of stress.

UK Pensions – Navigating the Atlantic Financial Currents

U.S. tax laws require reporting of foreign financial accounts, including foreign pensions. To avoid having any issues, ensure you are aware of your reporting obligations and provide accurate information to the IRS.

Defined Contribution pensions-  If you have Defined Contribution schemes, understanding the ongoing cost, current investment strategy and management of the pension is paramount. If you have multiple pots, consolidation is often a key factor for individuals for ease of reporting and management.

With Defined Benefit Schemes, where your company is due to pay you a fixed annual amount at retirement, understanding how they fit into your wider US retirement plan is important and the benefits/drawbacks of keeping it as an annual income. With most private schemes, you have the option of transferring these benefits in return for a lump sum figure known as a cash equivalent transfer value, which can be moved into another recognized pension scheme. This requires careful analysis and planning.

Social Security: how does it differ to the UK?

If you’ve contributed during your time in the States, you’ll be eligible for your own slice of the American pie. Coordination with your UK pensions is the key to maximizing your retirement beverage of choice. Be aware, that the social security system differs to that of the UK in terms of how your entitlement is built up and calculated. The amount you receive in the US depends on your earnings history and the age at which you choose to start receiving benefits.

Investment Portfolios: A Dash of Diversification

Many Britons choose to build diversified investment portfolios as part of their retirement planning strategy. Whether through individual stocks, mutual funds, exchange-traded funds (ETFs), or other investments, a well-balanced portfolio can help grow your wealth over time and provide income during retirement. There are countless investment platform options to help you get started on the investment journey.

In terms of the investment portfolios you may have accumulated in the UK such as ISAs and other UK-based investments, they may have a different tax treatment in the U.S. For example, ISA’s are not considered qualified tax-wrappers in the US therefore considering the tax implications and options for where else to invest this money is important. It is highly recommended to look into potential PFIC tax implications on your overseas assets. In short, your overseas assets need to be in IRS compliant structures in order to not get stung by hefty US tax charges.

Annuities: Retirement’s Cozy Fireside Chair

Whilst annuities may have fallen out of favor in recent years due to rock bottom interest rates, they have since made a might return into the limelight and can offer retirees a steady stream of income in retirement. Immediate annuities provide an instant income, while deferred annuities let your money simmer and grow until you’re ready to indulge.

In conclusion, Britons in the United States have a range of retirement planning options at their disposal. Successful retirement planning involves a combination of saving, investing, and understanding the tax and legal implications of your choices. Consulting with financial and legal professionals who specialize in international retirement planning can be instrumental in creating a secure and comfortable retirement in the U.S.

Join Robert for our Finance For Expats webinar Series where he will be presenting the following webinar:

Investment Guidance & Considerations for Expats in the US